Shares of Spotify (SPOT) have delivered exceptional gains in 2024. With a return of over 140% in the year-to-date, Spotify has easily outpaced the S&P 500’s ($SPX) 26.6% return.

This impressive run has been fueled by a trio of factors that have bolstered investor confidence. First, Spotify’s premium subscriber growth has been robust, reflecting its ability to attract and retain paying users in a competitive audio streaming landscape. Second, improved monetization strategies have strengthened the company’s revenue streams, ensuring it capitalizes effectively on its expanding user base. Lastly, Spotify’s performance across key profitability metrics has shown significant improvement, signaling operational efficiency and a clear path toward sustainable earnings growth.

While the gains have been stellar, this sharp increase has pushed Spotify’s valuations higher. Will Spotify continue to trend higher in 2025, or could the recent run cap further upside potential?

Why Spotify Is Likely to Sustain Its Momentum in 2025

Spotify is well-positioned to start 2025 on a solid note, driven by strong user growth and improved monetization. The company’s management has expressed confidence in sustaining progress across key performance metrics, laying the groundwork for continued growth and profitability in the years ahead.

The latest quarterly performance offers a glimpse into Spotify’s robust business dynamics. Its monthly active users (MAUs) increased sequentially by 14 million to 640 million, and premium subscribers grew by 6 million to 252 million. Both metrics exceeded the company’s expectations, reflecting the strength of Spotify's platform and its appeal to consumers.

The company also posted 19% year-over-year revenue growth, with premium revenue rising by 21%. This surge was driven by higher subscriber numbers and increased average revenue per user (ARPU), boosted by recent price hikes. Despite challenging market conditions, Spotify’s advertising business showed resilience, contributing to the overall revenue growth.

On the profitability side, Spotify is seeing positive results, particularly in its premium and ad-supported segments. The company is benefiting from efficiencies across its music, audiobooks, and other content offerings, driving down costs while maintaining high engagement. The result has been a sharp increase in free cash flow, which hit an all-time high in Q3, signaling strong financial health.

One of Spotify's key strengths is its ability to manage price increases without significant subscriber losses. Subscriber churn remains low, reflecting the platform’s high engagement levels. With a vast and diverse content library, including music, audiobooks, and podcasts, subscribers find more value in the service and its bundled offerings.

Another key highlight is Spotify’s ability to bring innovative features like its AI DJ and music videos, both of which are driving higher engagement. Users who engage with music videos or the AI DJ feature have shown significantly better retention. AI DJ, in particular, has exceeded expectations. This innovation is a reflection of Spotify’s ability to continuously deliver exciting, value-driven features that enhance the user experience.

Spotify has also expanded its range of subscription plans and offerings, giving users more options to tailor their experience. This approach has helped the company attract a broader audience while keeping its premium service attractive to existing subscribers.

With record free cash flow, strong subscriber growth, and high user engagement, Spotify is well-positioned to deliver above-average returns in 2025.

The Bottom Line

Spotify’s strategic focus on increasing premium subscribers, expanding its presence in developed markets, and enhancing its product offerings set the stage for continued growth in 2025. The company has shown strong growth in both its user base and revenue, which bodes well for improved profit margins and operating income moving forward. If these positive trends persist, Spotify could again see record free cash flow, further boosting its financial strength.

Wall Street analysts have a “Moderate Buy” consensus rating on Spotify, indicating that while the stock has experienced significant growth, there’s still potential for upside as the company continues strengthening its position in the audio streaming market.